SaaS Magic Number Calculator

Inputs

Net new ARR = ARR at period end minus ARR at period start, including expansion and net of churn. Use the S&M spend from the period before this one, since sales cycles mean spend takes time to convert into signed revenue. Pick any consistent period — a quarter is the usual choice.

Rule of thumb: above 1.0 is excellent, above 0.75 is good enough to justify investing more in sales & marketing, and below 0.5 usually means something upstream of S&M spend needs fixing first.

What the Magic Number actually tells you

Magic Number is net new ARR from this period divided by sales & marketing spend from the period before it: net new ARR ÷ prior-period S&M spend. It's a classic venture-capital shorthand for one narrow question: for every dollar spent on sales and marketing, how many dollars of new annual recurring revenue came out the other side? The prior-period lag matters — a rep hired or a campaign run this quarter mostly shows up in next quarter's bookings, so comparing this period's growth to last period's spend is what makes the ratio meaningful rather than misleading.

Unlike the burn multiple calculator, which divides total net cash burn (R&D, G&A, everything) by net new ARR, Magic Number isolates just the sales and marketing dollar — it answers whether the S&M engine specifically is paying for itself, independent of how efficient the rest of the business is.

How to read the number

• Above 1.0: excellent — a strong signal that pouring more into sales and marketing will keep paying off.
• 0.75 to 1.0: good, generally considered efficient enough to justify continued or increased S&M investment.
• 0.5 to 0.75: okay — the S&M engine is roughly funding itself but isn't a standout reason to pour in more cash yet.
• Below 0.5: inefficient — worth pausing S&M spend increases and digging into pricing, product fit, or the sales motion itself before adding more fuel.

Common mistakes

• Comparing this period's new ARR to this period's S&M spend instead of the prior period's — this understates efficiency for any business with a sales cycle longer than a few weeks.
• Using gross new ARR (new sales only) instead of net new ARR (new sales minus churn and downgrades, plus expansion) — leaving churn out flatters the number.
• Including non-S&M costs (R&D, G&A, customer success) in the spend figure — that's what burn multiple is for; Magic Number should use sales & marketing spend only.
• Judging a single period in isolation. Magic Number is noisy quarter to quarter (one big deal or one slow sales month swings it a lot) — look at the trend over two or three periods, not one snapshot.

Frequently asked questions

What's a good SaaS Magic Number?

Above 1.0 is excellent — a dollar of prior-period sales and marketing spend is producing more than a dollar of new annual recurring revenue, a strong signal to invest more in S&M. 0.75 to 1.0 is good and sustainable. Below 0.5 usually means something upstream — pricing, product fit, or the sales motion itself — needs fixing before spending more on S&M.

Why use prior-period S&M spend instead of the same period?

Sales and marketing spend takes time to convert into signed revenue — a rep hired or a campaign run this quarter mostly shows up in next quarter's bookings. Comparing this period's new ARR to last period's spend accounts for that lag; comparing both from the same period understates efficiency for anything with a sales cycle longer than a few weeks.

How is Magic Number different from Burn Multiple?

Burn multiple divides total net cash burn (including R&D, G&A, everything) by net new ARR, so it measures overall cash efficiency. Magic Number isolates just the sales and marketing dollar, ignoring the rest of the burn — it answers a narrower question: is the S&M engine specifically paying for itself.